Welfare Reform: A Financial Perspective from a Local Authority Chris West Director of Finance and Legal Services, Coventry City Council

Benefits and a Council’s gross spend

The importance of Welfare spend DWP – comfortably biggest public sector spend in the City HB and CTB Subsidy represent 18% of CCC’s gross income/spend Approx £500 per head of population per year Massive issue for claimants Pretty significant to the local economy! PLUS Approx 180 employees engaged in admin Not a peripheral issue

HB Reform – general impact Social/economic impact of detailed changes Hits low income working families/those on the edge of economic activity Direct payments of UC– disincentive to developers/investors to build rented housing Impact on Housing policy Growth of rent arrears Loss of local knowledge/relationships with landlords

Welfare Reform and the direction of travel for LG Finance Continual diminution of LG role and functions over 50 years Loss of HB the next step Continued erosion of control over school funding – current DfE Consultation “Localism” not supported by the facts Business Rate Reform does not redress the trend

The wider context Fundamental Challenge to our society: (the recesssion and) the ageing population and the pressure on the health and social care economy Major financial pressure for most LAs – and most families Though many families don’t yet realise

The Policy response needed A people focused view of need Joined up reform of welfare, pensions, health and social care An affordable strategy to meet individual need An understanding of what the state pays for and what the individual pays for

The Policy response we have: Welfare Reform driven by an efficiency/savings agenda Health reform driven by structural change and focused on de-monopolising provision A social care approach – the Dilnot report – in the long grass? Public sector pension reform driven by need for cuts No coherent approach

An example: Bridget Bridget is 80, frail, single and lives in sheltered Housing Association Accommodation in Warwick. She worked all her life in low paid employment, has savings less than £5k and no assets She has no work related pension She does not understand the bureaucracy – thinks its all done “by the Welfare”

State Support for Bridget - now State pension - DWP Pension Credit – means tested DWP Attendance Allowance – non means tested DWP Housing Benefit – means tested DWP via Warwick District Council Single Person CT Discount - non means tested Warwick DC Council Tax Benefit – means tested DWP via Warwick District Council Social care package – 1 hour twice a day – free following means test by Warwickshire CC Free Health Care on demand - NHS

State Support for Bridget - Post UC State pension – UC Pension Credit – means tested UC Attendance Allowance – non means tested UC Housing Benefit – means tested UC Single Person CT Discount - non means tested Warwick DC Council Tax Benefit – means tested via Warwick District Council Social care package – 1 hour twice a day – free following means test by Warwickshire CC Free Health Care on demand - NHS

Evaluation for Bridget Surprisingly little impact! This could be better for Bridget – but depends how well DWP gets its internal act together Service access by phone/internet a potential issue Will her rent be paid direct? If not how? Still lots of channels to negotiate Social Care and health issues likely to be of more pressing significance If Residential Care is next – a confusing minefield This is a simple example – many more complex ones And a lot of age related issues in the pipeline…

Financial issues - HB reform Unpicking massively complex subsidy system Impact on Council house rent collection Staffing: – TUPE? –Redundancy? –Loss of Admin Grant? –Split with CTB? Overpayments

Overpayments Treatment post UC??

In summary Strong likelihood of significant one off and ongoing residual costs

CTB Reform and the Collection Fund Council Tax and CTB a vital component of funding LA net spend In Coventry’s case funds 10.5% = £29m Risk on cost/caseload volume currently borne by DWP in subsidy system

How a Council sets its budget Add up spending needs Deduct fees, charges, specific grants Arrive at net spend Deduct Formula Grant (Business rates + RSG) = Amount needed from the Collection Fund (of course you can do this the other way!!)

How a Council sets its budget Collection Fund contribution determined by: –Tax base –Collection rate –Precepts At present CTB is a positive factor as: –Risks held by DWP –Entitlement is deducted from amount due –It pushes up Collection rates –LAs incentivised to maximise take up

The new system CTB subsidy goes - replaced by new cash limited grant 10% cut nationally - £460m, locally - £3m Grant each LA gets may or may not be close to current level of subsidy – rules for total and distribution not known! CTB in future a discount not a benefit The cut of 10% will have to be paid by people as an additional cost As pensioner and “vulnerable” protected disproportionate impact on other low income households

The new system - implications Bound to reduce Collection Rates This WILL mean cuts to services Do we need to plan bigger than 10% reductions in benefit to make up shortfall? Some LAs will backfill the cut to benefits/Collection fund shortfall from service cuts/higher Council Tax increases Council tax freezes How will the new grant rise year on year?

What if the Government freeze the new grant? A model Assume LA financial plan based on 2.5% CT rise pa In year one £30m grant = 90% of subsidy Other 10% of current subsidy, when lost is collected in full – i.e. ignore hits from falling collection Tax base and other variables fixed over 6 years

The Impact of Freezing CT grant £000s

A vicious circle Could increase CT to fill the gap, BUT Capping Referenda More protection for pensioners/vulnerable Bigger hit on low income claimants – especially those formerly eligible Of course, some of CT rise (24%) would lead to increase benefit which we have to fund!

The paradox of “Localism” “ The Government is also giving Councils much greater control over their purse strings. In previous years there have been many more funding streams and grants……this was very restrictive…as it meant Councils had to spend their money on priorities set in Whitehall” A plain English Guide to the LG Finance Settlment , DCLG “No more should proud Cities be forced to come to national government with a begging bowl. Councils should have greater control over their cash….” Eric Pickles, LG Resources Review, July 2011 “Government envisages funding to be paid to LAs in the form of an unringfenced special grant ” Localising Support for CT in England, DCLG, July 2011 And there will be one for Public health too

In summary CTB Proposals create significant risk: On our ability to implement On Collection rate On the size of the new grant relative to current subsidy On the distribution of the new grant On the indexation of the new grant AND Significantly increases central government financial control over the LG Finance System

CTB Reform - one of the most ill advised reforms since Poll Tax? Why??

In summary - overall Welfare Reform is needed Courageous intent, but still not wide enough pitched – social care, health, pensions too Timescales tight, pitfalls many – Treasury right to be worried HB – Reforms flawed? Workable? CTB - Reform flawed and undeliverable Its going to be an interesting few months!